stark law fair market value industry best practice

6 Mark O. Dietrich, CPA/ABV Stark II -Statutory Guidance Stark Statute - 42 U.S.C. The "value-based arrangements exception" to the Stark Law protects value-based arrangements that are set forth in a writing (signed by the parties) that details the following: the value-based activities to be undertaken under the arrangement; how the value-based activities are expected to further the value-based purpose(s) of the VBE; Third, fair market value as a concept is also dictated by relevant government enforcement actions as well as lawsuits. HHS, through the Regulatory Sprint to Coordinated Care, has a stated goal of reducing regulatory barriers within our nations health care system and accelerating the transformation of the health care system into one that better pays for value and promotes care coordination. As HHS statement indicates, value-based arrangements and transactions are the focus of this episode of Stark Law and AKS revisions, but other areas and central ideas of the Stark Law and AKS are significantly impacted as well. There is no fair market value calculator that takes in a couple datapoints and spits out a positive or negative fair market value answer. Structuring legally compliant hospital-physician leases and establishing fair market value (FMV) rental rates can be challenging. The Stark Law defines FMV as "the value in arm's length transactions, consistent with general market value". Thanks for reaching out. All Rights Reserved. We are uncertain why the commenters believe that it is CMS policy that compensation set at or below the 75th percentile in a salary schedule is always appropriate, and that compensation set above the 75th percentile is suspect, if not presumed inappropriate. a non-profitable arrangement) may present a problem, it is not expressing a definitive opinion on the matter as each arrangement is facts and circumstances specific, and it could see certain arrangements with facts and circumstances whereby a non-profitable arrangement is commercially reasonable. On December 2, 2020, OIG published its Final Rule, Revisions to the Safe Harbors Under the Anti-Kickback Statute and Rules Regarding Beneficiary Inducements, and CMS published its Final Rule, Modernizing and Clarifying the Physician Self-Referral Regulations in the Federal Register. The fair market value exception is a compensation exception that is flexible depending on the arrangement. The writing specifies the compensation that will be provided under the arrangement. Organizations who may have carte blanche physician compensation review policies set at certain thresholds should be careful that the totality of the facts and circumstances support each transaction (versus the entirety of all transactions). New Arrangement Best Practices Consult with a valuation expert on whether financial arrangements satisfy the new Stark Law fair market value and commercial reasonableness standards. With the increased rate of mergers and acquisitions, healthcare organizations are vulnerable to federal scrutiny. If base or guaranteed compensation does not exceed the 75th percentile for the physicians specialty, as published by a survey source like the Medical Group Management Associations Provider Compensation Survey, then they do not seek a fair market value opinion because they consider the compensation to be fair market value. The new Stark rule revises this, stating the fair . OIGs proposed new safe harbors are: Additionally, OIG is finalizing changes to the following existing safe harbors: CMS modifications and additions to the Stark Law rules were equally significant. In healthcare, the patient would have received the care regardless of the physician and the complexity of healthcare with patients moving to different sites of service and within different specialties creates impossible scenarios for tracking who is responsible for what. As it relates to the updated definition of fair market value, CMS continues to emphasize that its determination should be based on any appropriate method depending on the kind of transaction, its location, and other factors. Allows the electronic health records (EHR) exception to be unending and allows limited donations of cybersecurity that are necessary for EHR, flexible physician payment schedules, and donations of replacement EHR items. The law makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive anything of value (not just money) in order to induce or reward referrals or the generation of business paid for by federal healthcare programs. healthcapital.com. With regard to fair market value (FMV), industry best practice suggests that you ____________________________ in order to better withstand government scrutiny. Through the Final Rule, CMS has addressed the topic of losses and profitability, stating the determination that an arrangement is commercially reasonable does not turn on whether the arrangement is profitable; compensation arrangements that do not result in profit for one or more of the parties may nonetheless be commercially reasonable. CMS offers several examples of reasons parties may enter into an arrangement or transaction despite financial losses to one or more parties. According to CMS, those reasons include, community need, timely access to health care services, fulfillment of licensure or regulatory obligations, including those under the Emergency Medical Treatment and Labor Act, the provision of charity care, and the improvement of quality and health outcomes. In our opinion, this means health care organizations must go the extra mile to document their reason(s) for compensating physicians and APPs, if those arrangements and transactions are exhibiting or are expected to yield financial loses. On December 2, 2020, the Department of Health and Human Services ("HHS") Office of Inspector General ("OIG") issued final rules including a host of reforms to the AKS, including three changes to the personal services and management contracts safe harbor ("Safe Harbor"). The exception permits both monetary and nonmonetary remuneration between the parties. On January 19, long-awaited adjustments to the Centers for Medicare and Medicaid Services' ("CMS") Physician Self-Referral Law (commonly referred to as the "Stark Law") and the Department of Health and Human Services Office of Inspector General's ("OIG") Anti-Kickback Statute ("AKS") took effect that make it easier for hospitals and health systems to transition from volume . If the AKS is addressing criminal penalties, the consequences include fines up to $25,000 per violation and up to a five-year . 98810.3;2988 \div 10.3 ; 298810.3;2 significant digits. However, we agree with the commenter that asserted that a hospital may find it necessary to pay a physician above what is in the salary schedule, especially where there is a compelling need for the physicians services. Despite the request and urging of commenters, CMS declined to establish rebuttable presumptions that compensation is fair market value or safe harbors that would deem compensation to be fair market value if certain conditions are met. Bottom line, CMS affirmed that there is no guarantee to fair market value determinationthere is no universal formula or proverbial rubberstamp as it pertains to provider compensation. Cincinnati. In the Court's opinion, the excess payments would violate the Stark Law and would make claims made to Medicare for those services false claims. The law provides that "fair market value" is the value in arms' length transactions concerning rentals or leases and the value of a rental property for general commercial purposes. In addition to fair market value, most applications of the anti-kickback statute and Stark law also require commercial reasonableness. Download a PDF Version of the Article as Published in AHLA's 2021 . HSG has written articles about practice losses and how to address them. Documentation of all aspects of relationship. Posted on October 27, 2016August 15, 2022. Commercial Reasonableness Analysis for an Increasingly Regulated Healthcare Environment | BDO Healthcare Industry Blog . Due to a complex regulatory environment, an in-depth analysis should be performed to ensure that the healthcare transactions are legally permissible at FMV and are commercially reasonable. var today = new Date() In June 2022, the United States Department of Health and Human Services Office of Inspector General (HHS OIG) released OIG Advisory Opinion No. Introduction. stark law fair market value industry best practice. On February 9, 2018, Congress passed and President Trump signed into law H.R. As stated above in our discussion of fair market value, CMS continues to make it clear that the commercial reasonableness determination is also accomplished through consideration of an arrangements context and from the perspective of those involved. healthlawyers.org. Guidance on reconciliation of payment variances. Yes, consulting multiple, objective, independently published salary surveys remains a prudent practice for evaluating fair market value, as stated in Stark II, Phase III, but salary surveys are not automaticregardless of the percentile at which the compensation in question falls. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); document.getElementById( "ak_js_2" ).setAttribute( "value", ( new Date() ).getTime() ); 9850 Von Allmen Court 6 Carnahan Group provides a unique platform FMVMD,which allows healthcare organizations to analyze physician compensation arrangements for fair market value and commercial reasonableness instantly. HAND Children are the Future. This site rocks the Pearsonified Skin for Thesis. Sign Up for HSG's Physician Strategy News and Notifications on New Thought Leadership, Advanced Practice Provider (APP) Utilization, Fair Market Value and Commercial Reasonableness Opinions, Advanced Practice Provider (APP) Compensation, Download a PDF Version of the Article as Published in AHLAs 2021 Transactions Resource Guide to Share With Your Team, HSG Advisors Expands Consulting Services and Data Analytics Capabilities in Response to National Outpatient Utilization Trend, Creating a Win/Win System of Advanced Practice Provider Oversight, FPM Practice Pearls: HSG Advisors Shares How to Make APP Reviews Mutually Beneficial, Healthcare Provider Compensation in a Post-COVID, New MPFS Reality, Best Practices in Patient Attraction and Retention Strategies. 4 See 42 CFR 411.354. Fair Market Value (FMV) First, it delineated that salary surveys or salary survey percentiles may not be appropriate to use in all circumstances. The Stark Law safe harbor provision has seven components. Thanks for reaching out. Which of the following is TRUE about the Stark Law? 1892, the Bipartisan Budget Act of 2018 (the "Budget Act"), which included changes to the federal physician self-referral law (commonly known as the "Stark law").Among these revisions are allowing indefinite holdovers in two notable exceptions to the Stark law: (1) personal services arrangements and (2 . Key PYA Takeaway: Guidance from prior court decisions, as well as certain previous governmental representatives, have questioned commercial reasonableness if arrangements are not profitable. Health Management Associates $260 Million, Kalispell Regional Healthcare $24 Million. The key elements of a robust FMV practice continue, however, to evolve. Suite 201 The three types of transactions are asset acquisition, compensation, and rental of equipment or office space. In our prior article, we provided a basic overview of Fair Market Value (FMV) assessments and how these have become a key aspect in compensation contracts for cardiologists.We also reviewed how practices should focus on demonstrating their value to hospitals and health systems by showcasing leadership efforts within the practice and hospital, attention to strategy, financial performance . On Wednesday, October 9, HHS proposed highly anticipated reforms to regulations implementing the Physician Self-Referral Law and the Federal Anti-Kickback Statute, as well as related civil . 411.354 Financial relationship, compensation, and ownership or investment interest. thousands of dollars) for apartment buildings. In some cases, the alignment between compensation and production may be distorted. If a hospital is losing three times the national average in its employed primary care practice ask:(1) Why? Usually, the fair market price is the price at which bona fide sales have been consummated for assets of like type, quality, and quantity in a particular market at the time of acquisition, or the compensation that has been included in bona fide service agreements with comparable terms at the time of the agreement, where the price or compensation has not been determined in any manner that takes into account the volume or value of anticipated or actual referrals. Also, a quantitative analysis of revenue cycle should be conducted to determine if the anticipated transaction acquires any referrals during the process and to ensure that healthcare organization complies with the regulatory statutes. Fair Market Value ( 411.351) C. Group Practices ( 411.352) 1. Please join us on September 13 th! See our dedicated page. 4, It is important to maintain documents of services provided by healthcare professionals and have agreements in writing, along with documents supporting the financial transaction at FMV, for actual duties performed to standardize financial transactions and to prevent violation of fraud and abuse laws. We also believe there has to be a limit to what is reasonable in terms of losses. The Stark Law addressed a legitimate problem. Eliminating the period of disallowance rules and correcting discrepancies during the arrangement. Their concern has been financial, yes, but also an increasing concern of compliance risk. Distribution of Profits Related to Participation in a Value-Based Enterprise; b. Cybersecurity technology and services safe harbor for remuneration in the form of cybersecurity technology and services. Specifically, the Final Rule includes new or modified regulatory definitions for the terms "commercially reasonable," "fair market value," and "general market value" as well as terms particular to the definition of a "Group Practice." They must demonstrate that the net earnings of a tax-exempt organization are not used for private interests of employees and are used for the benefit of the community as a whole. Strategy, market growth, and larger referral bases were not among the examples. Personal services and management contracts and outcomes-based payments safe harbor creates protection under safe harbor for part-time or intermittent arrangements and arrangements for which total compensation is not known in advanceit eliminates a requirement that part-time arrangements have a schedule of services specifically set out in advance in the agreement. This has also been true in markets in which the demand and competition for CRNAs has exploded. Not only was the definition of general market value amended, but it was also given three unique definitions related to the context of a specific type of transaction. Via the Final Rule, CMS has also indicated that salary surveys, regardless of percentile, are not automatic determinates of fair market value, stating, Consulting salary schedules or other hypothetical data is an appropriate starting point in the determination of fair market value, and in many cases, it may be all that is required. Whether it's an outright acquisition or a lease or service agreement, and whether it is the business or the underlying tangible assets (real estate and equipment), the transaction must be consistent with Fair Market Value. 201 East Fifth Street Suite 1110 Cincinnati, OH 45202-4152 t: 513.870.6700 f: 513.870.6699. info@bricker.com. At WilliamsMarston, our team of valuation experts are readily available to assist you with your most important financial transactions, including navigating Stark Law and fair market value (FMV) matters. As to its civil penalties, the Anti-Kickback Statute includes monetary penalties up to $50,000 per violation, civil . The Federal Anti-Kickback Statute, codified at 42 U.S.C. Therefore, the analysis is recommended to be conducted by an independent valuation expert to establish a value that is consistent with independently published surveys that are comparable for similar services. The definitions of fair market value and commercial reasonableness have been updated and established as follows: Regarding commercial reasonableness, CMS clarified that , As it relates to fair market value compensation, CMS clarifies several important items. 411.362 Additional requirements concerning physician ownership and investment in hospitals. On March 30, 2020, the Centers for Medicare & Medicaid Services (CMS) issued blanket waivers to the Stark Law that permit certain arrangements between physicians and health care providers implemented in response to COVID-19 that would otherwise violate the Stark Law. On November 20, the Centers for Medicare & Medicaid (CMS) and the Department of Health and Human Services Office of Inspector General (OIG) issued a 627-page final rule which will serve to modernize and clarify Stark Law regulations. Some of those include organizations that have been charged even with compensation levels that are not above the 90th percentile. The final rule creates new exceptions to the Stark Law for value-based arrangements that satisfy specified requirements based on the characteristics of the arrangement and the level of financial risk assumed by the . Office-based primary care has been significantly affected as offices were closed for a period of time and then had to adjust to telehealth and virtual visits. Second, from a fair market value standpoint it is often the case that there are true limits on reasonable income and compensation under a financial arrangement with a physician. The arrangement does not violate the anti-kickback statute (section 1128B(b) of the Act), or any Federal or State law or regulation governing billing or claims submission. In a simple example, we can determine that fair market value for compensation of a medical director for a cardiac catheterization laboratory is $150 per hour. CMS further clarifies that commercial reasonableness is whether an arrangement makes sense as a means to accomplishing the parties goals. Unlike the civil nature of Stark Law, the Anti-Kickback Statute is under both civil (administrative) and criminal laws. Under the statute; 1320a-7b) prohibit payments and receipt of payments given with an intent to influence the purchase of a product or services for which Medicare or Medicaid reimbursement is sought. In other words, the rate of compensation set forth in a salary survey may not always be identical to the worth of a particular physicians services. This is something that we have experienced from time to time for uniquely trained or experienced physicians and/or challenging markets, but more recently and frequently for Certified Registered Nurse Anesthetists (CRNAs) who practice autonomouslyusually in rural markets. Sec. Again, job posting sites have been invaluable to determining fair market value for high-demand services. 411.354). Building High-Performing Physician Networks. Below is a listing of some of the key changes: For those in the physician and APP compensation valuation arena, and for any hospital or health system that compensates a health care provider for administrative and/or professional services (which would be all hospitals and health systems in the country), there are other aspects of the Stark Law revisions that are of particular interest. Previous Definition of Fair Market Value (42 U.S.C. Factors affecting the specific company risk of a practice can include the physician's age, specialty, location, market position, payer mix, payer contracts, size, and other factors. The best practice that a health system can adopt for establishing financial arrangements without getting penalized is consulting with a third-party valuation expert to not only rationalize the compensation rate, but to justify the community need. The case underscores that the OIG cares about technical as well as substantive compliance with the Stark law. The AKS Final Rule further codifies statutory revisions by adding the statutory exception to remuneration related to Accountable Care Organization Beneficiary Incentive Programs for the Medicare Shared Savings Program. \text{Constant} & \text{20.000} & \text{3.2213} & \text{6.21}\\ As an offshoot to periodic reviews of PSAs, Ms. Walsh says every component of the PSA must be recorded and documented to ensure both parties are . On the other hand, an arrangement must be considered fair market value in order to be commercially reasonable. ; ; If a payment is made that cannot be shown to have been fair . Carnahan Group. Cimasi, R. Z T. Traversing the threshold of commercial reasonableness in the healthcare industry. In addition, CMS removed the "volume or value" and the "other business generated" standards . 411.357 Exceptions to the referral prohibition related to compensation arrangements. The bottom line is that in the context of fair market value and the Stark Law, normal business negotiations allowing for leverage between parties is not necessarily the same in the healthcare context (because the parties cannot take into account that they generate business for one another). Government scrutiny around healthcare transactions has heightened in recent years due to an increase in the volume of violations of healthcare fraud and abuse laws. Many of these reasons are out of the hospital or health systems control. Jana will be discussing the Stark Law changes, and Angie will be providing related valuation examples during the September 13, 2022 Let's Talk Compliance webinar entitled Stark Law Changes and Impact on Physician Compensation Part 2. Downstream revenue may include referrals for laboratory services, referrals for imaging services, referrals for hospital services, or even referrals to other specialists. (i) Consistent with the fair market value of . Provides new exceptions for value-based compensation arrangements that meet certain financial risk requirements and provides new definitions for value-based activity; value-based arrangement; value-based enterprise (VBE); value-based purpose; VBE participant; and target patient population. It is inaccurate for a hospital or health system to believe that just because base compensation is below the 75th percentile there is no risk and that the compensation they are providing is automatically fair market value. For a vast number of health care entities, employment of physicians and APPs is the only option for attracting and maintaining providers in their community. \text{Residual} & \text{Error} & \text{7}\\ which allows healthcare organizations to analyze physician compensation arrangements for fair market value and commercial reasonableness instantly. The Stark Law (42 U.S.C. Therefore, the analysis is recommended to be conducted by an independent valuation expert to establish a value that is consistent with independently published surveys that are comparable for similar services. The same is not true for physicians and other entities when the Stark Law applies. The previous definition of fair market value stated that physician compensation "must be set in advance, consistent with fair market value, and not determined in any manner that takes into account the volume or value of referrals or other business generated by the referring physician.". The proposed rule would create new, permanent exceptions to the Stark Law for value-based arrangements. Current Definition of General Market Value (42 C.F.R. The following requirements must be bet under this exception: While this exception may be utilized in various situations, it is likely another exception, depending on the arrangement, would be more appropriate. The general market value definitions are: What does it mean for a compensation arrangement to be commercially reasonable? There are numerous laws across the country that have been created to remove this unethical practice. The reason the simplicity of this is not correct is that many lawsuits and government enforcement actions have established what are the risks associated with fair market value. Finalized protection for arrangements that will apply regardless of whether the parties operate in a fee-for-service or value-based payment system, such as donations of cybersecurity technology. 6 Financial arrangements are commercially reasonable if they are at FMV, services provided are documented and deemed necessary, and when the services cannot be provided at a lesser value.10 Financial arrangements should be based on comparable data and should be set in advance by members who have no conflict of interests. B. Stark Law Exception - Value-Based Arrangements . These statutes currently reside under the purview of Centers for Medicare & Medicaid Services (CMS) fraud and abuse laws. Do our losses mean the compensation we are paying, while fair market value, is not commercially reasonable? Isolated financial transactions, such as a one-time sale of property or a practice, or a single instance of forgiveness of an amount owed in settlement of a bona fide dispute, if all of the following conditions are met: (1) The amount of remuneration under the isolated financial transaction is. Many of the changes in the Stark Law are aimed at eliminating regulatory restrictions that could deter or even potentially eliminate some novel arrangements as the industry continues its move towards a value-based health care system. While the hypothetical fair market value is $450,000, the general market value may exceed that. In order to qualify for the recruitment exception, the arrangement must _________________________ . Three new safe harbors for remuneration exchanged between or among participants in value-based arrangements: Value-based arrangements with full financial risk. Further, even if the physician under the arrangement is paid, in part, based upon his or her productivity, any rates under those models must be consistent with benchmark data. First, financial incentives from a policy standpoint should not impact the plan of care developed for patients. The Stark Law defines FMV as the value in arms length transactions, consistent with general market value. Carry out the indicated operation and give your answer with the specified number of significant digits. Due to a complex regulatory environment, an in-depth analysis should be performed to ensure that the healthcare transactions are legally permissible at FMV and are commercially reasonable. Historically, the concept of a bargained for exchange was primarily handled and managed by financial professionals within the organization. The Stark law does maintain a definition of fair market value but it does not dictate actual numbers. Which of the following is a government sanction provided under the Stark regulation? May 10, 2022 at 11:37 AM 6 minute read The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, investment or tax advice or opinion provided by Carnahan Group to the reader. These historic reforms became effective January 19, 2021 and are part of HHS's "Regulatory Sprint to . 411.354). New Value-Based Exceptions. Likewise, a belief that paying a provider above the 75th percentile is not fair market value is also misplaced. A qualitative analysis of the nature and scope of services performed, necessity of services, and comparability of services should be performed. Fixed asset valuations include fair market value, orderly and forced liquidation valuations of medical equipment, office and computer equipment, software, leasehold improvements and supplies inventory. Stark defines fair market value (FMV) as ______________________________ . Healthcare organizations should consider both qualitative and quantitative components for FMV and commercial reasonableness analyses of financial transactions. Ultimately, valuators likely will have to be creative and look back into past years surveys to evaluate trends and validate current survey data. While CMS has indicated that the presence of losses does not automatically call into question an arrangements commercial reasonableness, the agency noted that each arrangement or transactions circumstances will ultimately determine its commercial reasonableness. Healthcare employment contracts must: 1) Have a duration of at least a year. The answer to that question has often been more elusive and not as immediately apparent as fair market valueand we know how nebulous and elusive fair market value can be at times. Industry stakeholders have informed us that, because the consequences of noncompliance with the Stark Law are so dire, physicians and other healthcare providers may be discouraged from entering into innovative arrangements that would improve . var year = today.getFullYear() 7. Finalized new, permanent exceptions for value-based arrangements that will permit physicians and other health care providers to enter into value-based arrangements without fear that their legitimate activities to better coordinate care, improve quality, and lower costs would violate the Stark Law.